On 21 July 2020 the Law Commission published its recommendations for leasehold reform, including the suggestion that commonhold could become the preferred alternative to leasehold and creating a more leaseholder-friendly Right to Manage regime.
This a substantial exercise over three reports and here we take a look at some of the key recommendations, starting with the changes to the Right to Manage process.
Right to Manage gives leaseholders the right to apply to take over the management of their development, without the need to buy the freehold. Leaseholders don’t need to prove any fault on behalf of the existing manager, but they do need to meet a tight set of qualifying criteria and follow strict processes. RTM can also be expensive, as leaseholders have to cover the landlord’s costs.
The Law Commission’s recommendations aim to make RTM simpler and more accessible. They include:
- Removing the requirement for leaseholders to pay the landlord’s costs of the RTM claim;
- Relaxing the qualifying criteria so that the RTM can be claimed in respect of a wider range of buildings, for example buildings with up to 50% commercial space.
- Allowing leaseholders to acquire the RTM for multiple buildings on an estate
- Reducing the number of notices that leaseholders must serve
- Giving the FTT the power to waive procedural mistakes in claim notices
- Clearer rules for the management of property, such as shared gardens and carparks
- Training and better information for RTM company directors and members
- The right for the RTM company to request information about the premises from a much earlier stage to facilitate a smoother handover of management functions
We largely welcome the changes to the Right to Manage regime, not least the proposed over-turning of the ‘single block rule’ that has caused problems at many modern leasehold estates, with physically separate blocks.
Creating a more streamlined and leaseholder-friendly RTM application process can easily be viewed in a positive light, together with the earlier handover of information to enable the incoming managing agent to focus swiftly on restoring good block management to the development.
Interestingly the Brady Solicitors Leasehold Survey showed substantial commentary that many leaseholders did not know about their potential rights to change management.
Making commonhold the ‘preferred alternative’ to leasehold
The difficulties with the leasehold regime are well-rehearsed, not least for those leaseholders who bought their property without a clear understanding of just what they were getting into. The Law Commission’s recommendation to make commonhold the preferred alternative to leasehold has naturally grabbed many of the headlines.
Commonhold is a property ownership right that was created in 2002 and enables property owners to own the freehold to their apartment block, and involvement in the management of shared spaces. Adoption of commonhold has however been very slow – there are a handful of commonhold developments compared to 4.3 million leasehold properties – lenders are not keen, and awareness is limited amongst homeowners. There has also been much debate especially in larger complex blocks of the value of an independent commercial freeholder.
The Law Commission is seeking to address this by tackling some of the recognised issues in commonhold and making it easier for leaseholders to convert their block to commonhold.
So, what does this mean in practice? As specialist leasehold solicitors, switching a development to commonhold raises some specific queries in our minds:
- How does commonhold offer more than a block where the freehold is owned by the leaseholders?
- What is the motivation for a developer to opt for commonhold, whilst leasehold remains an option?
- What will be the ‘final lever’ for resolving non-payment of service charges or a substantial breach of the lease?
- What happens with leaseholders who don’t take part in the conversion to commonhold? The Law Commission’s report suggests that properties of non-participating leaseholders will also convert to commonhold and that the funding will be provided by government equity loans, which would be repayable on sale of the property.
Does this mark the beginning of the end for leasehold?
Whilst it’s clearly a headline grabber, on closer analysis, the recommendations are perhaps not quite as radical as they first appear. Many of the proposals are sensible and will correct oddities and difficulties within the existing leasehold system.
Taking these changes alongside the developing regulatory framework for Managing Agents (you can have your say on this new consultation here), we seem to have a sensible route to raising standards – something that we at Brady Solicitors have long advocated.
If standards can be consistently raised – and enforced – across the industry, it may make it less likely that the government will make a full leap into commonhold as a de facto replacement for leasehold, not least given the need to recompense for lost legal interests.
Watch this space!
For help or advice on Right to Manage or any other legal property management challenge, please do get in touch.